Russia
The principles of agency are recognized in Russia. For instance, it is possible to appoint an agent to act on behalf of other parties.
The concept of trust, on the other hand, is not recognized under the Russian law, thus alternative structures (such as a credit agent (krieditnyj upravlyayushiy)) are used in syndicated secured transactions.
Are there any restrictions on giving and taking guarantees and security?
As a matter of Russian law, a guarantee is not regulated separately – it is one form of security which shares common features with other forms of security.
Some of the key areas affecting the giving of security are as follows.
Form of a contract
Granting security that breaches certain mandatory form requirements specified by the law will lead to its invalidity. The requirements differ depending on the type of the security. For example, a pledge of a participation interest must be notarized, while agreement on penalty must be in writing regardless the form of the primary obligation.
Insolvency
For a period after a new security interest has been granted (known as the hardening period), security may be at risk of being set aside under Russian insolvency laws if the security was granted within a certain time period prior to the insolvency of a company and a company received considerably less consideration for it or if a deal was made with the purpose of prejudicing the property rights of the creditors. Another ground for setting security aside is where the court qualifies the deal as leading to preference of one creditor over the other creditors.
Subsequent pledge
Pursuant to recent changes to the law, a subsequent pledge cannot be prohibited by the first ranking pledge agreement. However, if a first ranking pledge agreement specifies the terms on which a subsequent pledge is to be concluded, the breach of such terms entitles the first ranking pledgee to claim from the pledgor compensation of any losses incurred by such breach.
What are common types of guarantees and security?
There are various methods of securing performance of obligations under the Russian law.
The common types of security interest include:
- pledge (including mortgage);
- surety (note that the surety and the debtor shall be jointly liable to the creditor unless the surety agreement or law provides for secondary liability);
- independent guarantee (a written guarantee issued by a bank or other legal entity to pay the creditor a certain amount of money irrespective of the validity of the obligation secured by this guarantee);
- security payment (a sum of money paid by one party to another party to secure a monetary obligation, including the obligation to pay a penalty for breach of contract and certain other specific types of obligations);
- penalty (a sum of money which the debtor is obliged to pay to the creditor in the event of its failure to discharge its obligations); and
- retention (a creditor has the right to retain tangible property in its custody in the event that the debtor fails to discharge its payment obligations relating to the property).
Are there any other notable risks or issues around giving and taking guarantees and security?
To be valid, security shall comply with the following form requirements:
- An agreement on a penalty must be in writing regardless the form of the primary obligation.
- A pledge can be created by a written agreement or by operation of law (in this case the parties may conclude a written agreement regulating their relationship). The pledge of participation interest must also be notarized.
- A surety agreement must be in writing (in some cases it can be created by operation of law).
- An independent guarantee must be granted in a written form that allows for the identification of the terms of a guarantee and to ascertain its authenticity.
The law also states compulsory registration requirements for certain types of pledge that are not created until such registration is made:
- A pledge of participation interest must be registered in the official single register of the legal entities.
- A mortgage (pledge of immovable property) as an encumbrance over the real estate must be registered in the unified state register of real estate.
- For a share pledge, a transfer record must be made on the account on which the rights of the shares owner are recorded.
There is also a register of notifications on the pledge of movable property which is maintained by the notary public. Registration of the pledge is not compulsory but the pledgee is only entitled to refer to the pledge in its relations with the third parties if registration is made. Moreover, regardless of the time the pledge was created, priority will be given to the claim under a pledge which has been registered first.